- -Open Market Rates - Currency Convertor
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Economic data is released from these countries on an almost daily basis, allowing investors to stay on top of the game when it comes to assessing the health of each country and its economy. (For more insight, see Trading On News Releases .)
-Open Market Rates - Currency Convertor
For example, let's look at the New Zealand dollar/Japanese yen pair (NZD/JPY). Let's assume that New Zealand has an interest rate of 8% and that Japan has an interest rate of % In the currency market, interest rates are calculated in basis points. A basis point is simply 6/655 th of 6%. So, New Zealand rates are 855 basis points and Japanese rates are 55 basis points. If you decide to go long NZD/JPY you will earn 8% in annualized interest, but have to pay % for a net return of %, or 755 basis points.
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Carry Trade Success
The key to creating a successful carry trade strategy is not simply to pair up the currency with the highest interest rate against a currency with the lowest rate. Rather, far more important than the absolute spread itself is the direction of the spread. In order for carry trades to work best, you need to be long a currency with an interest rate that is in the processes of expanding against a currency with a stationary or contracting interest rate. This dynamic can be true if the central bank of the country that you are long in is looking to raise interest rates or if the central bank of the country that you are short in is looking to lower interest rates.
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Let me first clarify what costs every realized deal entails in reality. In the following illustrative example from real trading you will see how significant the difference in total costs could be with various brokers.
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Despite this market's overwhelming size, when it comes to trading currencies, the concepts are simple. Let's take a look at some of the basic concepts that all forex investors need to understand.
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